When the economic history of the decade is written someday, there very well may be a chapter about the spring and summer of 2013, when money that had been pouring into emerging market countries shifted the other way. Recently, the economies of emerging markets are looking dismal with both currencies plummeting in value against the dollar.
Capital flowed into emerging markets when interest rates dropped in the U.S. and Europe during the 2008 financial crisis, but as those economies rebound, investors are turning the other way.
“Investors are seeing the prospect of reduced Federal Reserve intervention in the U.S. — which will tend to raise long-term interest rates in the markets — and they want to get some of those better returns,” says Andrew Walker, the BBC’s economics correspondent. “In the process, they are selling money in emerging financial markets, and that has been driving the currencies down and the interest rates up.”